FILE PHOTO: Logo of Aeon Co is seen on shopping carts at its supermarket in Tokyo

(Reuters) Naruhito Nogami, a 37-year-old systems engineer in Tokyo, drives to discount stores on weekends to bulk buy cheap groceries, even though he earns enough to make ends meet and the prospects for Japan’s economic recovery are brighter.

“I do have money, but I’m frugal anyway. Everyone is like that. That’s just the way it is,” he says.

Kazuko Sato, a 50-year-old animation artist, also frequents discount chain Daiso, where most items ranging from groceries and bath towels to kitchenware sell for just 100 yen ($0.91).

“I look for things here first, and if they aren’t here then I go to the supermarket,” she says, cradling a basket in the stationery aisle. “My job and salary are unstable so I need to be careful about my spending.”

People like them have prompted some companies to embark on sweeping price cuts, showing how tough it will be to eradicate Japan’s deflationary malaise despite the improving economy.

It also highlights a new paradox facing the Bank of Japan: a disparity between solid growth and stubbornly weak inflation.

Top retailer Aeon Co (8267.T) is cutting prices for over 250 grocery items this month to lure cost-savvy shoppers, and Seiyu, operated by Wal-Mart Stores (WMT.N), cut prices on more than 200 products from February.

“It’s unthinkable for us to raise prices at this stage,” Fast Retailing Co (9983.T) CEO Tadashi Yanai said after the owner of clothing brand Uniqlo reported flat revenue on Thursday.

To be sure, many retailers say they are protecting their bottom line by offering not just discounts but high-end products.

“It’s not just prices consumers are looking at. They are just being selective,” said Takaharu Iwasaki, president of supermarket chain operator Life Corp (8194.T).

But central bank policymakers are struggling to explain why inflation and wages remain so low even as Japan’s economy enjoys its third-longest recovery since World War Two.

“It’s a new conundrum for us,” one official said. “It just shows how sticky Japan’s deflationary mindset is.”


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